Dennis Pellerito, Head of Wholesale, UK, Fidelity, assesses the potential challenges facing investors after a particularly eventful period with global events affecting the markets. He also suggests three opportunities in coming years for paraplanners to consider.
There’s some debate about who coined the term ‘polycrisis’ but it does seem to describe the situation facing investors currently.
From a financial perspective is the shift in monetary regime, from one supportive of global markets to one with a focus on taming inflation. This is challenging the outlook for assets and global economic growth was particularly acute for all markets in 2022.
Other risks, including geopolitical uncertainty and a gradual decoupling of large economies from globalised supply and cooperation networks, continue to exacerbate the challenges facing asset markets as we entered 2023.
After the trauma of 2022 when shares and bonds both fell in tandem, investors can once again pick up a decent yield in fixed income and money market funds. While this might have grabbed investor attention so far in 2023, many may have missed the AI driven bull market in US stocks.
With so many factors still at play, the outlook from here could remain bumpy as we look to navigate the ‘polycrisis’. Asset managers must remain agile yet focused on priorities to create value for clients and help reallocate capital in sustainable way.
I see three potential opportunities to watch in the coming years:
1. While the sustainability agenda has been somewhat disrupted by geopolitical unrest, it will remain a secular trend with significant investment implications and opportunities. Climate related issues as well as those linked to alleviating biodiversity loss will be clear priorities. This is why we strongly believe in accompanying corporates in their transition through active stewardship and dialogue. Exclusions alone will not move the dial, but engagement will.
2. I think the growing appeal of private assets will continue as investors look to diversify away from traditional listed equity and bond portfolios. We expect democratisation of private assets to be a key tailwind for future asset growth. Traditionally, private assets have only been accessible to large institutional investors. But as regulators open the door to wider participation and technology advancements breaks down the liquidity barriers, we should see growing client interest beyond large institutional players.
3. China represents a big opportunity for investors and fears that China’s focus won’t be on the economy are misplaced. China started to relax its Zero-Covid policy, and growth will be the top priority for next year, particularly in sectors including information technology and the digital economy, biopharmaceuticals, infrastructure, and high-end manufacturing. Fundamentally, we see a clear desire for stability and continue to believe that China and its dynamics are impossible for investors to ignore.
